Riding the Global Gravy Train

For six years in a row Fortune magazine has voted Enron, the Houston-based natural gas and power company, the most innovative corporation in the United States. With the world’s largest online trading site, last year Enron traded tens of billions of dollars of natural gas contracts; the corporation’s total revenues exceeded 100 billion dollars. Enron assiduously cultivates its corporate image, donating Enron Field to the grateful sports fans of Houston and operating charities like the PGE-Enron Foundation, which gives hundreds of thousands annually to worthy and non-controversial causes in Oregon.

Lulled by corporate spin, Americans have largely ignored the process by which, in one decade, this tiny company metastasized into a global giant–62nd on the Forbes Global 500 list last year and moving up. Although innovation is certainly part of the story, far more significant are old-fashioned corporate practices such as influence-peddling and human-rights violations.

Enron’s exploits in the presidential campaign, ably chronicled in The Observer, include donating $555,000 in soft money for the Republican Party and allowing candidate George W. Bush the use of Enron corporate jets. According to a study by the Los Angeles Times, Enron and associates gave nearly $400,000 to Bush’s two gubernatorial campaigns, nearly one third of total corporate contributions. Rewards for this generosity include Bush’s introduction of the 1995 Environmental Health and Safety Audit Privilege Act, the most industry-friendly of the nation’s 12 polluter immunity acts, written largely by an industry representative. Under the terms of the act, polluters that make private, internal audits are virtually exempted from complying with pollution regulations. Audits are then treated as privileged information, unavailable to litigants in civil or even criminal cases. Enron has frequently filed for protection under the act. Similarly, in 1996, Bush derailed legislative efforts to tackle the problems caused by companies that had been grandfathered in under the 1971 Texas Clean Air Act. The net result is that Houston’s air quality is now the worst in the nation, and every major metro area in Texas is slated to move into noncompliance with federal air-quality norms.

Enron’s international dealings, however, are not as well known here. Enron’s power plant and natural gas operations involve more than 30 countries, and frequently involve allegations of bribery, coercion, and human-rights violations. After the Gulf War, Enron hired former Secretary of State James Baker to lobby Kuwait for the contract to rebuild the Shuaiba power plant. Enron got the contract, even though a German firm underbid it by almost half. In 1995, Enron used then-National Security adviser Anthony Lake and the U.S. Embassy to coerce Mozambique into granting them a contract to develop the lucrative Pande natural gas fields. Pratap Chatterjee of Corporate Watch reports that according to Mozambique’s natural resources minister, “There were outright threats to withhold [U.S. Agency for International] development funds if we didn’t sign, and sign soon. [U.S.] diplomats, especially [the deputy chief of the Embassy], pressured me to sign a deal that was not good for Mozambique. It was as if he was working for Enron.”

But by far the worst of Enron’s international projects, arousing the most opposition, is a liquefied natural gas (LNG) power plant in Maharashtra, the Western Indian province that is home to Bombay. Initiated in 1992, just as India was opening its economy to foreign investment, the project is one of the largest private industry-government contracts in the world. It calls for the payment of roughly $35 billion over 20 years to the Dabhol Power Corporation (DPC), of which Enron is the chief shareholder (Bechtel Enterprises and General Electric each have 10 percent and Maharashtra’s electricity board has 15 percent.) The first phase of the project, a 740-megawatt plant, came online in August 1999. The second and final phase (1,444 megawatts) is scheduled to come online later this year.

Almost from the start, the project has been a major focus of political contention, as journalist Abhay Mehta has superbly documented in Power Play. Originally trained at MIT as a molecular biologist, Mehta combines an encyclopedic knowledge of the power industry with a citizen’s frustration at corruption and lack of accountability on the part of government officials and corporate executives. Already in its second printing in India, Power Play paints a vivid picture of a government and a political process gone mad.

The Maharashtra project proposal had so many severe flaws that even the World Bank, notorious for its development fiascos, wouldn’t touch it. To start with, Maharashtra didn’t need the power. Although peak demand (at times of highest use) does exceed peak supply, base-load capacity (what’s needed for steady, ongoing use the day round) is more than adequate. By virtue of the way liquefied natural gas moves around the world in gigantic “trains” of specially refrigerated ships, the Dabhol plant can only be a base-load plant, thus it cannot address the peak supply shortage. Next, Enron brought virtually nothing of its own to the project, proposing to raise capital through the World Bank, U.S. Ex-Im Bank, and Indian capital markets. These funds, the World Bank noted, would also be “available to finance reasonable alternative projects.” Furthermore, Enron-generated power is incredibly expensive, costing roughly three times as much as the average of all other power used in Maharashtra, and six times as much as the inexpensive coal-fired base-load power it has displaced. Last year, the Maharashtra State Electricity Board (MSEB) was forced to raise power rates 20 percent across the board just to make its payments on the Dabhol plant. In sum, the Enron project is the perfect antidote to the hype about the need of Third World countries for foreign investment in “infrastructure development.” India didn’t need the project; it could have done the project better itself and it would have cost a lot less.

Last month, the MSEB stopped paying its bills to Enron entirely, saying it didn’t need the power and couldn’t afford it. In response, Enron invoked the draconian guarantees it obtained from India nearly a decade ago. As Mehta writes, “The Republic of India staked all its assets (including those abroad, save diplomatic and military) as surety for payments due to Enron by MSEB.” The central government now plans to honor that commitment, paying Enron billions for power that no one will use while half the country suffers from malnutrition.

The legal guarantees Enron obtained don’t stop there. The Indian government also waived its sovereign immunity and agreed to give English courts jurisdiction over contract disputes. Enron even has an agreement with the Maharashtra government to “indemnify and keep indemnified the company against any loss sustained or incurred by the company by reason of the invalidity, illegality or unenforceability” of the contract, known as the Power Purchase Agreement. The old extra-territoriality imposed by Western colonialism on China held Western citizens above the law. The new imperial imposition is corporate extra-territoriality.

The political process by which a nominally open and democratic society like India acquiesced to the Dabhol project is the most interesting part of Mehta’s story. On December 8, 1993, Enron and India’s government signed a Power Purchase Agreement in what, as Mehta notes, could only be called indecent haste. The project was a major issue in Maharashtra’s January 1995 legislative elections, which swept the opposition into office largely because they opposed the “suspicious Enron deal.” The new government set up a special commission whose report caused the cancellation of the project on August 3, 1995 and a flurry of behind-the-scenes dealing by Enron. Frank Wisner, then U.S. Ambassador to India, campaigned strenuously against the cancellation. Wisner, who had earlier helped Enron get a project in the Philippines when he was ambassador there, was appointed to Enron’s board of directors after he returned from India. Four days before the central government rescinded the cancellation, Enron gave $100,000 to the Democratic National Committee.

While this was occurring, the state of Maharashtra filed suit to cancel the project, contending that the Power Purchase Agreement was “violative of several statutory provisions” and was “conceived in fraud.” An Enron official once testified before a U.S. House Committee that Enron had spent $20 million on “education” for the project.

While the case was proceeding, Rebecca Mark, CEO of the Enron Development Corporation, the subsidiary responsible for the Dabhol project, flew to Bombay and miraculously obtained the state government’s agreement to drop the lawsuit. They even agreed to extend the project further. But the government’s about-face did not end there. When activists then filed a public-interest lawsuit against the DPC, the state of Maharashtra recanted its own claims of bribery, and had the court suppress 1,200 pages of documents from its own aborted litigation. Having ensured the complete cooperation of central and state governments, Enron was able to survive all challenges.

As Mehta demonstrates, in dealings with India Enron showed open contempt for the entire society. At one point Enron responded to a standard request for an accounting of capital costs, with “we would advise you against auditing project costs and predetermining return on equity.” Later, company officials wrote a memo suggesting that Indian laws establishing the regulatory power of government agencies, governing prices, and requiring power plants to operate efficiently and economically were inappropriate and that Enron should not be bound by them. The memo offered a range of “solutions,” including “amending legislation.”

When asked to make public the details of the Power Purchase Agreement, Enron replied, “To a country as yet unused to the phenomenon of privatization this may be difficult to understand, but in a competitive market a Power Purchase Agreement (PPA) is the one document that affords companies an edge over the other players in the field…You will therefore appreciate the fact that such a document is zealously guarded by all companies.” The statement is ridiculous on its face, given the public’s right to be informed of government agreements. It reaches the height of absurdity considering that Enron was never anywhere near a competitive market; no other companies tendered bids for the Dabhol project, and the agreement was concluded in secret.

Although Mehta does a remarkable job dissecting the intricacies of power generation and business contracts, Power Play has some shortcomings. Written in a dry and technical style, it will be rough going for most readers. The book also tends to downplay the environmental and human rights issues involved in the Dabhol project. Fortunately, Human Rights Watch has produced an excellent report, available on the Internet at (http://www.hrw.org/hrw/reports/1999/enron/enron-toc.htm). The report details numerous human rights violations against protesters, including the use of excessive police force, sexual assault, and harassment by thugs. Many of these abuses were committed by security forces on the Enron payroll, so the corporation cannot claim lack of knowledge or involvement. The report concludes, “Many energy companies have invested in closed or repressive countries, arguing that their investment would help develop the local economy and thereby improve the human rights situation. But in this case, Enron has invested in a democratic country and human rights abuses there have increased. Enron hasn’t made things better for human rights, it has made things worse.” The environmental consequences of the project include serious waste heat from the plant, which endangers fish species vital to local communities, and pollution of a hitherto-pristine area of Maharashtra.

Although further disquisitions on the corporate threat to democracy, humanity, and life as we know it are rapidly becoming superfluous, we can still learn much from the case of Enron. In a world where corporations routinely write laws to suit themselves, Enron stands out because of its cavalier assumption that all laws should redound to its own benefit. In the Latin American business press, for example, Enron executive Kathy Lynn can be found blandly remarking that, “Through market presence [in Brazil] we hope to be able to influence the way the regulations are written. We have a regulatory affairs group that is active in trying to influence regulations that affect us so we are comfortable with them.”

Enron also stands out for its skill in co-opting politicians from all parts of the spectrum to do its dirty work, and for its willingness to grease the wheels of government with liberal doses of campaign cash . Perhaps most striking is the way it has grown out of nothing, combining ultramodern Internet-fueled growth with techniques rarely seen since the days of the robber barons, when anyone sufficiently ruthless and corrupt could create billions of dollars in equity out of thin air.

These new robber barons have not gone unopposed. Enron’s dealings helped to catalyze the formation of the National Alliance of People’s Movements (NAPM), an India-wide umbrella group comprising thousands of grassroots organizations, including several dedicated solely to shutting down the Enron project (http://www.narmada.org/NAPM/napm.html). The NAPM recently forced the U.S.-based Ogden Energy Group, which signed a contract for a hydroelectric power project during Clinton’s visit to India in March 2000, to leave the country. The recent default on payments to Enron may open space for the solution of this problem as well.

In the United States, opposition to Enron has been on a smaller scale, confined mostly to community activism in some Texas towns. But the potential for growth is tremendous, especially if done in coordination with efforts elsewhere. Perhaps the most exciting aspect of the new anti-corporate-globalization movement is the phenomenal growth in international solidarity linkages. Best-known are the numerous links between trade unions in the United States and those in Latin America. But in a right-to-work state like Texas, community-to-community links may be more important. The globalization of capital very often provides communities in the North and in the South with the same specific corporate enemy, giving a natural material basis for the much-called-for globalization of resistance.

Rahul Mahajan is a doctoral candidate at the University of Texas, a writer, and a campus and community activist. He can be reached at [email protected] Mehta maintains a website at http://www.altindia.net/enron/ Further information will soon be available at http://www.stopenron.org.